The federal bailout legislation passed last Friday will ultimately help restore calm in the debt and equity markets, but over the short term credit will remain tight, additional financial services providers will falter, and economic disruption will continue, likely worsening before it begins to improve.

Yet that is not the whole story. The climate for middle-market mergers and acquisitions among information, media and marketing services companies is still active. Buyers--both strategic and financial--are buying, lenders are lending, and deals are getting done. In fact, the current turmoil in the wider economy is actually creating opportunities for our sell-side and buy-side clients.

Because Berkery Noyes does not trade stocks or take positions in the transactions we manage, our business remains strong, stable and growing. We are as busy as ever doing what we’ve always done: helping clients explore strategic and financial options and advising them on the best course of action to maximize the value of their companies.

Middle Market is Still Active

While tight credit and a lack of confidence has stalled most billion-dollar deals, especially when leverage is involved, transactions in the middle market—ranging from $25 million to $500 million—are presently doing well. These transactions typically involve little or no leverage: most of the major strategic buyers have cash on their balance sheets and are willing to spend it on quality assets. In fact, given the recent uncertainty in the money markets, acquisitions actually entail lower risk for cash-rich buyers, including those we define as “semi-strategic”—portfolio companies of private equity groups that have adequate capital and are not overleveraged. Some large private equity firms are even willing to pay all cash for acquisitions in this value range.

What has changed in the past year is the refocus on high-quality assets. Prior to the onset of the credit crunch in the summer of 2007, cheap capital meant that buyers could invest in both quality and quantity. They would purchase companies that added to their customer base, expanded their product offering or deepened penetration in a market, even if the asset itself was not necessarily profitable or growing on a stand-alone basis. Today, we are seeing a dramatic and disciplined return to quality over quantity: a business in an attractive sector of the economy, growing revenue, with a strong EBITDA margin.

Because so few large acquisitions are in their pipelines, buyers both strategic and financial are able to give middle-market transactions a lot of their attention. With little or no financing involved, these deals can be completed quickly, and more internal resources are available to integrate the acquisition into the buyer’s existing operation post-acquisition. Given the efficiencies of buying a high quality asset versus building a similar asset from the ground up, it makes more sense to purchase a company, then use the buyer’s capital, skill set and market strength to help accelerate growth of the acquired asset.

Where to Turn for Advice

In a challenging environment, the characteristics of a boutique firm like Berkery Noyes provide a distinct advantage to clients. Unlike larger investment banks, Berkery Noyes is strictly focused on mergers and acquisitions. We do not offer other financial products, and therefore provide unbiased advice. Because we focus on a few well-defined vertical markets, we have superior knowledge resources: we know who is buying, who is selling, what companies are worth, and why. Our senior investment bankers are deeply experienced in the markets they cover, and, because we are a relationship-based business, we value their long tenure with our firm.

If you’re considering growth through acquisition, boosting liquidity through the sale of a business, or simply want to know where you stand in an uncertain market, Berkery Noyes stands ready to offer clear, thoughtful, unbiased advice. Call John Shea at 212.668.3022 or email him at insight@berkerynoyes.com to initiate a confidential discussion.

We welcome your thoughts on these or any other topics related to your business.